My company operates it’s own Cycle to Work scheme, so there are no external providers/vouchers to worry about and the company will just buy a bike from a shop of your choice. I’m now trying to persuade our finance guy that I should be able to use it to get a second hand bike in a private sale (paid for by the company PayPal account) as long as they provide some sort of receipt.

Looking at the company scheme documentation and the HMRC guidance it doesn’t seem to specify anywhere that the bike must be new or that it must be bought from any particular kind of source. Is anyone aware of any reason this should be a problem? Any evidence I can show the finance guy to show this is allowable?

I know some companies would be worried about stolen bikes etc, but I’m confident of the providence of this bike, we’re only a small company and I’m one of the founders – so can get past that.

So in STW’s opinion would this be a legal use of the C2W scheme?

I think (and this may be completely wrong) that C2W is tax free which is where the saving is. Your company reclaims the tax back from the government (again, I think).

Since second hand bike purchase won’t include VAT, there’ll be nothing to claim back so if your company tried to claim tax back then they’ll be committing fraud.

As said, I know very little about it but I think thats how it’d work.

You got the first sentence wrong 😛

2nd, VAT’s not usually a factor, my guess it’s the provenance of the seller as the OP alludes to.

I don’t think it is VAT related. My reading was that your repayments are taken before Tax and NI are deducted, in the same way pension contributions are. This then reduces the taxable portion of your pay saving money that way. The repayments I would make are based on the price including VAT, but the company can reclaim the VAT.

Obviously in the case of the private sale no VAT is involved, but I dont think this affects it. I would just repay the purchase price.

Don’t companies usually pocket the VAT they reclaim whilst charging employees based on the VAT inclusive value? I thought that was part of what made C2W attractive to employers along with the reduction in ER NI.

I have some say in this from the company side, so the benefit to the company is of lesser importance here, just the benefit to me. What I’m trying to figure out is whether HMRC would consider it to be a legal use of the scheme.

It appears that non VAT registered companies can run a scheme so I’m pretty sure you’d be able to buy from a non VAT registered supplier.

One possible issue HMRC may have is in calculating the fair market value of the bike at the end of scheme, it being second hand.

VAT’s not usually a factor

Forms part of the calculation doesn’t it, you’re not buying the bike the company is and you are then leasing/hiring it from them for the period the scheme runs, most companies would acquire an asset and then claim the VAT back, and so what you are repaying (pre tax and NI deductions) is the Ex VAT value of the bike.

At the very end of the scheme’s period HMRC still like to get some share of VAT from the transfer of ownership from a company to a private individual, hence the change they made a couple of years ago to try and extract VAT as per “market value” rather than in line with whatever made up nominal fee was previously agreed, and the work around that most seem to do where by the lease period is extended until the Asset (the bike) can be written off as essentially having no market value when the transfer takes place…

It’s a just minor tax wheeze and a faff for those who can be arsed now, and you’d probably save more actual money by taking out a 0% credit card and buying a 2014 year model bike from paul’s cycles…

Looking at it, the employee plays the VAT inclusive price, whether the Employer reclaims the VAT or not. Which is nice for the employer, but doesn’t affect the legality for HMRC if they don’t pay/reclaim VAT.

The scheme is already setup so there is little work/faff for the company and for nearly 40% off the price of the bike it’s probably better than a “minor tax wheeze” to me. The company aren’t looking to gain from the scheme, it’s just a perk.

I want a fairly specific bike that I’m not going to get from someone like Paul’s Cycles. My best bet is second hand – if I can get away with it.

I think that a second hand bike should be absolutely fine, but:

1. You can’t reasonably apply HMRC’s standard table of “minimum fair market values” when you come to transfer ownership of the bike in 3 years’ time (or whenever). A second hand bike has already taken its initial depreciation hit, so you’d expect it to hold its value better. As there’s no tax relief on the final sale, the savings of the scheme are dependent on the bike depreciating heavily during the period that it is owned by the company, and for new bikes, HMRC helpfully provides some fairly aggressive depreciation rates that you’re allowed to apply.

2. Assuming a private purchase, there’s no VAT for the company to reclaim, but when the company comes to sell the bike to you in the future, if it’s VAT registered, it’ll need to charge you VAT on that sale, eating into the savings you can make.

If your company really is offering this as a perk, then it’s worth noting that there’s no requirement for the company to break even on the rental payments that it charges you. It can certainly pass on the Employers NI savings that it makes on your salary sacrifice and still break even on the deal, and if it really wants to it could reduce them further and make a loss on the deal.

HMRC won’t calculate FMV. They’ll use a lookup table which assumes new. A little bit of extra depreciation at the end of the scheme before you purchase the remainder is a wise saving.